Shares of data cloud service provider Snowflake have plummeted by 28% this year after Frank Slootman, who oversaw the company’s successful 2020 IPO, handed over the CEO role to Sridhar Ramaswamy. Despite the drop in stock price, potential investors are advised to hold off on buying Snowflake shares due to a mixed first-quarter earnings report, uncertainty surrounding the success of Snowflake’s AI strategy, and doubts about Ramaswamy’s ability to deliver growth and profitability that surpass expectations.
Since taking over as CEO in February, Ramaswamy has been focused on learning from customers, preparing for upcoming events, and emphasizing the importance of securing initial deals before attempting to upsell. One reason for optimism is Snowflake’s partnership with Nvidia, in which they are combining Nvidia’s accelerated computing and software with Snowflake’s AI capabilities to unlock a new era of AI for customers of all industries.
Snowflake’s first-quarter earnings report for fiscal year 2025 showcased mixed results, with revenue exceeding expectations but adjusted earnings per share falling short and a disappointing full-year guidance. Despite the positive revenue growth, the decline in product gross margin and investment in new AI initiatives raised concerns among investors. Snowflake is positioning itself for long-term growth by investing in AI initiatives like Cortex and Arctic, and plans to hire AI talent to remain competitive in the evolving market.
Snowflake views AI as a capability that will be infused into all its products rather than a separate revenue source. The company is offering various AI services to help customers migrate to the AI cloud, with a focus on features like Snowpark Container Services and Document AI. Ramaswamy highlighted that dozens of partners are building solutions leveraging container services, and over 750 customers are already using Cortex AI capabilities to increase productivity and reduce time-consuming tasks.
Ramaswamy is optimistic about Snowflake’s potential for growth, emphasizing the larger vision of the company as the nervous system of the enterprise and the partnership with Nvidia as a significant source of growth. The collaboration with Nvidia aims to combine their software with Snowflake’s AI capabilities to drive business processes and achieve profitable growth. Wall Street analysts see substantial upside potential in Snowflake’s stock, with a 55.48% increase needed to reach the average price target. The wait-and-see approach towards Snowflake’s stock is advised, as lower expectations could make it easier for Snowflake to surpass them and achieve faster growth under Ramaswamy’s leadership.
